By Daniel Ni
Over the past thirty years, China’s GDP has grown by over 10% per year, making it the second largest economy in the world behind only the United States. According to the Economist, the US and the Euro zone are expected to have 2.4% and 0.6% increases in their respective GDPs while China’s GDP is expected to increase by a whopping 8.6%.
However, China’s debt concerns many experts; China’s national government owes a debt equal to roughly 70% of the 2009 Chinese GDP. By contrast, the United States’ national government owes a debt equal to roughly 50% of the 2009 U.S. GDP. Experts worry that the more debt that is on the books, the more vulnerable borrowers will be to shocks.
Another issue that critics and naysayers point to is the competitive advantage enjoyed by Chinese exporters due to the artificially low value of the yuan is a double edged sword, as the low value of the yuan is putting pressure on domestic prices, contributing to inflation that has hovered around 7% since the yuan became unpegged.
Some experts have predicted a decline of the dollar in 2010; such a development could prove disastrous for the Chinese who hold trillions in U.S. debt. If the dollar declines, not only do Chinese asset values decline, Chinese exporters will also be hurt. However, the Chinese cannot liquidate their assets without causing a depreciation of the dollar.
However, China has been proving naysayers wrong for years, as early as 2001 experts were already predicting the burst of the Chinese bubble. Maybe China can continue surprising us for another decade.
